How to Calculate Gains and Losses

It is easy to understand how financial spread trading works when the user of this investment option knows how to calculate the gains and losses that can occur. This helps to give potential investors an idea of how this can be both a valuable investment option and a risky option. Here is a look at how these values are calculated.

First it will be important to consider the amount of money that is valued for each penny or point of a stock or other type of commodity that is being traded. When the trade is first set up a value will be placed by the person requesting the trade for a certain amount of money for each point that the stock changes in value by. In some cases the value will be as low as one pound.

The amount of money that was risked per penny will then be multiplied by the number of points or pennies that the investment changes in value. The product will be the total profit or loss that comes as a result of the transaction. The two main factors here will be the money invested in each point and the changes in points of the item that is being used in the trade whether it is stock or a commodity or other item that can be invested in.

Here’s an example of what can happen through gains and losses in financial spread trading. If a person invests £15 per point on a stock and the stock receives an increase in 18 points then the investor will earn a profit of £270.

Likewise losses can occur if the value of the investment that is used in financial spread trading goes down. If the investor puts in the same £15 per point on a stock and the stock goes down by nine points then the investor will lose £135.

Overall it can be seen that the gains and losses in financial spread trading can be especially high depending on the amount of money that is invested per point and the changes that go into the investment that the person works with. It will be important to know that when the amount of money per point that is invested increases in value the risk that is involved in this form of trading will increase because not only can high profits be made but high losses can be received too.